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VEIA Legislation and Issues Initial 2005 Markup

VEIA Legislation and Issues Initial 2005 Markup. Rhode Island GHG Process - Phase IV Transportation and Land Use Working Group - Meeting 2 January 7, 2005. 410-569-0599 www.meszler.com. Introduction.

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VEIA Legislation and Issues Initial 2005 Markup

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  1. VEIA Legislation and IssuesInitial 2005 Markup Rhode Island GHG Process - Phase IV Transportation and Land Use Working Group - Meeting 2 January 7, 2005 410-569-0599 www.meszler.com

  2. Introduction • VEIA bill submitted in 2004 included a GHG reduction target and formulaic fee adjustments developed outside the GHG Stakeholder Process. • Some “on the fly” workgroup recommendations were included to tweak the algorithms, but opportunity was not available for serious consideration of implications and alternatives. • An initial markup of the 2004 bill has been prepared for workgroup consideration. • Should be considered as an initial effort open to refinement. Page 2

  3. Two Major Issues with 2004 Bill • GHG reduction target fixed, regardless of ability to attain. • 90% of 1990 emissions, regardless of VMT growth or availability of vehicles. • Automatic fee adjustments do not properly recognize the realities of fleet turnover -- and as a result, will increase fees under almost all reasonable future scenarios -- including those that comply with the GHG goals. • “Circuit breakers” added to constrain the fee adjustment process, but these mask rather than fix problems. Page 3

  4. Market Realities (2003 Data) Page 4

  5. 2004 Adjustment Algorithm Page 5

  6. 2005 Markup Philosophy • Recognize two basic design options. • Option 1: Fix GHG target on the basis of inventory needs and set (and adjust) economic levers to meet that target. • Strength: Outcome is pre-determined (assuming feasible). • Weakness: Ignores market constraints (vehicle availability). • Option 2: Set (and adjust) economic levers on the basis of market conditions and “accept” resulting GHG reductions. • Strength: Greater chance of consumer acceptance and success. • Weakness: GHG reduction may be less than inventory goal. • 2004 design based on option 1: option 2 for 2005 markup. Page 6

  7. 2005 Markup Approach • Develop evaluation tool to estimate fleet efficiency required to produce various levels of GHG reduction for various VMT growth rates. • Review scenarios and select a viable reduction target based on market availability of vehicles with requisite efficiencies. • Revise legislative language to reflect new reduction target and develop new economic adjustment algorithms that reliably monitor and promote progress. Page 7

  8. Interim Efficiency Target • As a placeholder for stakeholder input, an interim efficiency target of 0.82 pounds CO2 per mile (24 mpg) is established for new vehicles based on the fact that 25 percent of models have an equal or greater efficiency. • To accommodate potential improvements in high efficiency vehicle availability, the efficiency target is “variable” at the lower of 0.82 or the efficiency that defines the highest quartile of available models. • In effect, the GHG reduction target recognizes current market constraints, but also “moves with the market.” Page 8

  9. Base Zero Point & Incentive Rate • Base zero point retained at 0.78 pounds CO2 per mile (25 mpg). • Base incentive rate revised slightly to $2,550 (from $2,400) per pound CO2 per mile ($500 per gallon per 100 miles). • Revision only reflects more accurate conversion between fuel consumption and CO2. • Automatic adjustment algorithms replaced in their entirety. Page 9

  10. Zero Point Adjustment • In 2004 bill, adjustment was set annually at 0.05 pounds CO2 per mile less than observed average emission rate. • Markup version replaces the additive adjustment with a multiplicative adjustment set at 0.85 times the observed average CO2 emission rate. • Although neither approach is ideal, the multiplicative approach better keeps the zero point “far enough ahead” of the observed average to ensure program solvency (and offset some portion of gas tax revenue losses). Page 10

  11. Zero Point Offset Relationship Page 11

  12. Incentive Rate Adjustment • In 2004 bill, adjustment set at 1.20 or 0.83 of “previous” rate based on fleet compliance with efficiency target. • Markup version replaces fleet average adjustment basis with adjustment based on new vehicle efficiency. • Fleet efficiency response is non-linear, while new vehicle response is directly comparable with new vehicle efficiency target. • Markup adjustment is continuous between unity and specified maxima (to ensure that annual adjustments are constrained). To maximize incentive rate stability no downward adjustment is proposed. Page 12

  13. Markup Adjustment Algorithm • If average CO2 emission rate is less than or equal to the emissions target, the adjustment factor equals 1.0. • If average CO2 emission rate is greater than or equal to the emissions base (2006 average CO2 emission rate), the adjustment factor equals 1.5. • Else, the adjustment factor equals: Emissions Target – Emissions Base Average CO2 Emission Rate – Emissions Base • New rate equals previous rate times the adjustment factor. Page 13

  14. Markup Adjustment Maxima • Annual incentive rate increase limited to $1,300 per pound CO2 per mile ($250 per gallon per 100 miles). • Maximum incentive rate limited to $7,650 per pound CO2 per mile ($1,500 per gallon per 100 miles). Page 14

  15. Other 2005 Markup Changes • All dates extended by one year. • Added definition of “emissions base” to mean pre-VEIA average CO2 emission rate. • Defining this value is important and should be undertaken in earnest in 2005 or 2006. • Monetary round-off changed from $100 to $50 to better distinguish GHG continuity. • Various time (model year and calendar year) references clarified to better define program requirements. Page 15

  16. Net Effect of Changes • 2004 Approach: Push fleet to goal regardless of market implications. • 2005 Approach: Push fleet to reduce CO2, but within the constraints of vehicle availability. • In effect, do not expect VEIA to carry the “whole” GHG reduction load, but rather treat VEIA as one of a “menu” of strategies. Page 16

  17. Workgroup Input • All revisions to date are placekeepers pending workgroup review and/or modification. • Both absolute values and basic approaches should be considered. • Emissions target. • Economic adjustment algorithms --- approach. • Economic adjustment algorithms --- minima and maxima. • Various charts follow that might facilitate consideration. Page 17

  18. Summary of 2004/2005 Differences PCPM = pounds CO2 per mile, GPHM = gallons per 100 miles. Page 18

  19. Potential Fees Page 19

  20. CO2/FC Incentive Rate Relation Page 20

  21. CO2/FC & CO2/FE Relations Page 21

  22. Possible Targets (1.3% VMT Growth) Page 22

  23. Possible Targets (2030 Full Turnover) Page 23

  24. Possible Targets (2020 Compliance) Page 24

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